EQUITY MARKETS
Asian Equity Market
Japanese markets played catch up after their holiday and ended Friday’s session with -2.82% paced by risk-off flows due to the stronger Yen and concerns over domestic growth.
Asia markets, in general, were slightly tempered as the Dollar strength and an adjustment in the risk mood, seeped into late Asian Trade. Meanwhile, SHCOMP outperformed throughout the week with a potential break of the downtrend line from 14 Jul buoyed by the positive sentiment in China.
Source: Bloomberg
European Equity Market
Major bourses traded within a narrow range at the beginning of the week. However, European shares fell to a one-month low on Friday across all indices due to weak earnings results.
Source: Bloomberg
US Equity Market
US equities traded within a wide range throughout the week with a significant rise on Wednesday and Friday.
On Wednesday, the Fed reiterated that they would maintain interest rates near zero for as long as it takes to recover from the pandemic, which drove U.S. Equity indices up. The US stocks ended the week and the month on an upswing as a rally in tech shares led major indices higher, in particular the tech index, Nasdaq. The strong earnings from some of the largest US companies contributed to the index gains.
Source: Bloomberg
FIXED INCOME
US 30Y Treasury yields moved in line with the US equity markets throughout the week which could indicate that the outflow of funds from the credit markets to the equity markets is based on the overall risk sentiment. The US 2Y – 10Y curve flattened for the bulk of the week as investors waited for Washington lawmakers to reach a deal on Covid-19 relief. The flattened US 2Y-20Y curve illustrates investors’ expectations over weak growth and low inflation. Bond volatility, as measured by the Move index, moved to all-time lows, as the Fed’s expansion of the balance sheet pushed volatility in the rates space down.
Source: Bloomberg
COMMODITIES
Silver reached a near-term blow-off top on Tuesday, with the Dollar’s performance dictating the moves in the precious metals space. Volatility in Silver was elevated as the metal traded within a wide range throughout the week.
Base metals saw less volatility as copper and nickel traded within a narrow range. On Wednesday, Zinc was the outperformer rising +2.25% following reports that China became a net steel importer in June, which happened for the 1st time since 2009.
Source: Bloomberg
CURRENCIES
DXY
After a week of consecutive daily losses in the Dollar, the Dollar index bounced off a 2 year low on Tuesday. However, the bounce appeared short-lived and looked primed for further weakness as the US continued to see a rise in the number of Covid-19 cases. With the Fed’s historic expansion of the balance sheet and jobless benefits already weighing on the Dollar, an extension for the impending expiration of the benefits and uncertainty over the upcoming US presidential elections has added to the Dollar’s sinking feeling. Some respite came on Friday, where the Dollar rose against a basket of currencies as month-end flows had investors covering shorts and taking profit after the biggest monthly decline in the currency in a decade.
Source: Bloomberg
AUD/USD
AUD continued to benefit from the weakened Dollar throughout the week except on Friday when the Dollar markedly, wiping out the four previous days of gains.
Source: Bloomberg
EUR/USD
The Euro breached the technically important $1.16 level and continued to climb, hitting highs last seen in September 2018. The Euro’s strength was also aided by the stronger than expected June preliminary PMI in Germany and the EU.
Source: Bloomberg
GBP/USD
The pound held near a 4-month high as retail sales prints came in better than expected. The pound breached the 1.310 level, before failing near the resistance at 1.320. Friday’s decline broke a series of 10 consecutive days of gains.
Source: Bloomberg
USD/JPY
The risk-off sentiment led to a rise in the Yen against the Dollar. There is still some divergence between the risk-on sentiment in the equity market and the risk-off sentiment in the currency market. However, on Friday, the Dollar strengthened against the Yen, casting aside gains from the previous days.
Source: Bloomberg
XAU/USD
Throughout the week, gold traded to within USD20 of the USD2000/ounce but was thwarted by bouts of strength in the Dollar. Falls were fleeting though, with gold recovering from Thursday’s drop. There may be some possible hints of exhaustion in Gold in the daily chart, after its torrid pace of gains in the last 2 weeks.
Source: Bloomberg
HIGHLIGHTS OF THE WEEK
Americas
United States
- Senate Republicans released their proposal for phase four stimulus on Monday evening. Altogether, the proposals held few surprises and would – provide another round of tax rebates, $1,200 per adult and $500 per dependent, for individuals making $75k or less; scale back the $600/week enhanced unemployment benefit to $200/week for two months to allow states to implement a new 70% wage replacement formula that would run through end-2020; provide $60bn in new Paycheck Protection Program (PPP) funding and repurpose the $130bn in unused PPP funding for another round of loans targeting smaller businesses that continue to face demand shortfalls; provide $105bn for schools, two-thirds of which would go to schools that implement a re-opening plan; institute a liability shield for businesses that make a “reasonable” effort to follow local health guidelines; and increase employer tax credit incentives for worker retention. The Republican proposal did not include aid for state & local governments
- The FOMC statement noted its commitment to using its full range of tools to support the US economy amid the tremendous human and economic hardships and warned that the path of the economy would depend significantly on the course of the virus, with Fed chair Powell warning that the Covid-19 resurgence was starting to “weigh.” The Fed also said it would increase its holdings of UST and agency MBS to at least the current pace to sustain smooth market functioning. The Fed also announced it would extend the temporary liquidity swap lines to nine foreign central banks and the foreign repo program through 31 March 2021. Continuing on the Fed, they announced that they were extending for three months the key emergency programs that were due to expire at end September
- In the US, initial jobless claims rose for the second consecutive week by 12k to 1.43m. Personal income shrank 1.1% in June, but personal spending rose again by 5.6%. The core PCE deflator also rose 0.2% m/m (0.9% y/y) in June, while the Chicago PMI surged from 36.6 in June to 51.9 in July
- Escalating US-Sino tension over Tik-Tok, amongst other Chinese apps. Of note, Mike Pompeo shared that the Trump administration is poised to announce a decision on Tik-Tok and “a broad array” of Chinese owned software deemed to pose national-security risks. Trump said that he planned to ban the video-sharing app, but the secretary of state’s comments suggest an expansion of possible targets
- On the Covid-19 vaccine front, Pfizer and BioNTech started a Phase 2/3 safety and efficacy clinical study on their vaccine while Moderna received another $472 million award from the U.S for its vaccine efforts
Europe
- Germany’s 2Q20 gross domestic output shrank by -10.1% q/q and -11.7% y/y. The results were worse than consensus estimates of -9%
- Spain reported a record plunge in 2Q20 GDP of -18.5% q/q. The severity of this fall illustrated the effects of Spain’s lockdown since mid-march
- French economy contracted -13.8% q/q in 2Q20. However, the economy was quick to recover towards the end of the quarter, running at an approximate 90% capacity in July
Asia
China
- China passenger traffic flow recovered to nearly 70% of the same period last year which indicated citizen’s confidence in the Chinese government to deal with the pandemic
- China warned the United Kingdom on Thursday that the UK will not have a future if they attempted to decouple from China. China’s ambassador stated that the UK would “pay the price” for treating China with such hostility
Hong Kong
- Hong Kong economy contacted for the fourth straight quarter by 9.0% y/y (-0.1% q/q sa)
- Hong Kong postpones the Legislative Council elections for a year ‘over virus concerns’. However, democracy campaigners have accused the government of using the pandemic as a pretext to stop people from voting, with this election being the first after the controversial National Security Law was implemented. Police have disqualified 12 democratic candidates from the election
Singapore
- In Singapore, the MAS asked banks to cap their 2020 dividends at 60% of last year’s levels, pushing bank stocks down for the entirety of Thursday’s trading
- The total, resident, and Singapore unemployment rates jumped to 2.9%, 3.5%, and 4% respectively in 2Q20. Total employment excluding FDW fell by a record of 121,800. This is more than 4x the 25,600 decline in 1Q20, even though retrenchments only rose to 12,760. The labor market is likely to deteriorate further, and the total unemployment rate may rise to 3-3.5% by year-end, potentially warranting more policy assistance
- The construction of an $880 million light rail project linking Malaysia’s southern state of Johor with Singapore will begin in 2021. It is expected to complete by 2026
ECONOMIC CALENDAR
3/8/2020
| All Day | Canada – Civic Holiday | |
| 6:30 | AUD | AIG Manufacturing Index (Jul) |
| 7:50 | JPY | GDP (YoY) |
| 7:50 | JPY | GDP (QoQ) |
| 9:45 | CNY | Caixin Manufacturing PMI (Jul) |
| 12:00 | IDR | Core Inflation (YoY) (Jul) |
| 12:00 | IDR | Inflation (MoM) (Jul) |
| 13:30 | GBP | Investing.com GBP/USD Index |
| 13:30 | USD | Investing.com Gold Index |
| 13:30 | USD | Investing.com S&P 500 Index |
| 13:30 | CAD | Investing.com USD/CAD Index |
| 13:30 | AUD | Investing.com AUD/USD Index |
| 13:30 | JPY | Investing.com USD/JPY Index |
| 13:30 | EUR | Investing.com EUR/USD Index |
| 15:15 | EUR | Spanish Manufacturing PMI (Jul) |
| 15:45 | EUR | Italian Manufacturing PMI (Jul) |
| 15:50 | EUR | French Manufacturing PMI (Jul) |
| 15:55 | EUR | German Manufacturing PMI (Jul) |
| 16:00 | EUR | Manufacturing PMI (Jul) |
| 16:30 | GBP | Manufacturing PMI (Jul) |
| 21:45 | USD | Manufacturing PMI (Jul) |
| 22:00 | USD | ISM Manufacturing Employment (Jul) |
| 22:00 | USD | ISM Manufacturing PMI (Jul) |
4/8/2020
| 0:30 | USD | FOMC Member Bullard Speaks |
| 7:30 | JPY | Tokyo Core CPI (YoY) (Jul) |
| 7:30 | JPY | CPI Tokyo Ex Food and Energy (MoM) (Jul) |
| 9:00 | AUD | Trade Balance (Jun) |
| 9:30 | AUD | Retail Sales (MoM) (Jun) |
| 11:35 | JPY | 10-Year JGB Auction |
| 12:30 | AUD | RBA Interest Rate Decision (Aug) |
| 12:30 | AUD | RBA Rate Statement |
| 15:00 | EUR | Spanish Unemployment Change |
| 22:00 | USD | Factory Orders (MoM) (Jun) |
5/8/2020
| 4:30 | USD | API Weekly Crude Oil Stock |
| 8:30 | JPY | Services PMI (Jul) |
| 9:45 | CNY | Caixin Services PMI (Jul) |
| 9:45 | CNY | Chinese Composite PMI (Jul) |
| 15:15 | EUR | Spanish Services PMI (Jul) |
| 15:45 | EUR | Italian Services PMI (Jul) |
| 15:50 | EUR | French Services PMI (Jul) |
| 15:55 | EUR | German Services PMI (Jul) |
| 16:00 | EUR | Markit Composite PMI (Jul) |
| 16:00 | EUR | Services PMI (Jul) |
| 16:04 | IDR | GDP (QoQ) (Q2) |
| 16:30 | GBP | Composite PMI (Jul) |
| 16:30 | GBP | Services PMI (Jul) |
| 17:00 | EUR | Retail Sales (MoM) (Jun) |
| 20:00 | JPY | BoJ Governor Kuroda Speaks |
| 20:15 | USD | ADP Nonfarm Employment Change (Jul) |
| 20:30 | USD | Exports |
| 20:30 | USD | Imports |
| 20:30 | USD | Trade Balance (Jun) |
| 20:30 | CAD | Trade Balance (Jun) |
| 21:30 | USD | Seevol Cushing Storage Report |
| 21:45 | USD | Markit Composite PMI (Jul) |
| 21:45 | USD | Services PMI (Jul) |
| 22:00 | USD | ISM Non-Manufacturing Employment (Jul) |
| 22:00 | USD | ISM Non-Manufacturing PMI (Jul) |
| 22:30 | USD | Crude Oil Inventories |
| 22:30 | USD | Cushing Crude Oil Inventories |
6/8/2020
| 5:00 | USD | FOMC Member Mester Speaks |
| 14:00 | GBP | BoE Inflation Report |
| 14:00 | GBP | BoE MPC vote cut (Jul) |
| 14:00 | GBP | BoE MPC vote hike (Jul) |
| 14:00 | GBP | BoE MPC vote unchanged (Jul) |
| 14:00 | GBP | BoE QE Total (Jul) |
| 14:00 | GBP | BoE Interest Rate Decision (Jul) |
| 14:00 | GBP | BoE MPC Meeting Minutes |
| 14:00 | EUR | German Factory Orders (MoM) (Jun) |
| 14:15 | INR | Interest Rate Decision |
| 15:30 | EUR | IHS Markit Construction PMI (Jul) |
| 16:30 | GBP | Construction PMI (Jul) |
| 17:00 | EUR | Spanish 10-Year Obligacion Auction |
| 19:30 | GBP | BoE Gov Bailey Speaks |
| 20:30 | USD | Initial Jobless Claims |
| 22:00 | USD | FOMC Member Kaplan Speaks |
7/8/2020
| 0:00 | GBP | BoE Financial Stability Report |
| 7:30 | JPY | Household Spending (YoY) (Jun) |
| 7:30 | JPY | Household Spending (MoM) (Jun) |
| 9:30 | AUD | Home Loans (MoM) |
| 9:30 | AUD | RBA Monetary Policy Statement |
| 9:45 | AUD | RBA Assist Gov Ellis Speaks |
| 14:00 | EUR | German Industrial Production (MoM) (Jun) |
| 14:00 | EUR | German Trade Balance (Jun) |
| 14:45 | EUR | French Non-Farm Payrolls (QoQ) (Q2) |
| 15:30 | GBP | Halifax House Price Index (YoY) |
| 15:30 | GBP | Halifax House Price Index (MoM) (Jul) |
| 16:12 | CNY | Exports (YoY) (Jul) |
| 16:12 | CNY | Imports (YoY) (Jul) |
| 16:12 | CNY | Trade Balance (USD) (Jul) |
| 20:30 | USD | Average Hourly Earnings (MoM) (Jul) |
| 20:30 | USD | Average Hourly Earnings (YoY) (YoY) (Jul) |
| 20:30 | USD | Nonfarm Payrolls (Jul) |
| 20:30 | USD | Participation Rate (Jul) |
| 20:30 | USD | Private Nonfarm Payrolls (Jul) |
| 20:30 | USD | Unemployment Rate (Jul) |
| 20:30 | CAD | Employment Change (Jul) |
| 20:30 | CAD | Unemployment Rate (Jul) |
| 22:00 | CAD | Ivey PMI (Jul) |
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